Protecting the developmentally disabled from credit card debt
Secured cards and low credit limit can cut the risk of financial woes
Writes regularly about personal finance and health
Managing money can be challenging in the best of circumstances. But for about 6 million people in the United States with developmental disabilities, money, credit and debt can pose unique concerns.
The phrase “developmental disabilities” refers to a group of conditions that originate during childbirth or childhood. Examples of developmental disabilities include autism, attention deficit disorders and intellectual disability. These conditions can be characterized by an impaired ability to function physically, mentally or behaviorally.
Developmental disabilities vary greatly. So do the abilities of the disabled to handle their own finances. Many people with developmental disabilities can make sound financial decisions on an ongoing basis, and handle credit responsibily. For others, though, a single credit card solicitation could lead to a spending spree for which the disabled individual is unable to pay.
If you have a family member who is developmentally disabled, some common questions include:
- How can I help?
- If I help, how can I limit my own financial risk?
- What can I do if the disabled person has fallen deep in card debt?
“One of those quandaries that family members are faced with is, ‘How can I help them be independent without putting my own independence at risk?’” says Todd Christensen, director of education for the National Financial Education Center at Boise, Idaho-based credit counseling organization Debt Reduction Services.
Here are five tips on how to help a developmentally disabled loved one avoid getting into debt or get out of financial trouble.
1. Don’t butt in if you are not needed.
First, do no harm. If someone is capable of making their own decisions, don’t strip them of that independence, says Robin Shaffert, senior executive officer of individual and family support for The Arc, a national organization that supports the rights of people living with developmental disabilities.
If the person is capable of making financial decisions, resist the temptation to take over. Instead, guide. Family members can talk to their loved one about good money habits and financial pitfalls to avoid. They can also make sure the developmentally disabled person has trustworthy financial advisers.
2. Set up accounts with limited risks.
You may be tempted to set up a joint checking account, or a credit card with the developmentally disabled person as an authorized user. While these options let you keep an eye on the loved one’s finances, they open you up to financial liability. Any checks written or charges made will have to be paid, and you will be responsible for paying them.
Instead, consider other tools that can help developmentally disabled adults learn how to spend responsibly:
- Secured credit cards: There is less risk to the developmentally disabled adult because they can’t charge more than the secured card’s credit limit, which is the amount put up for collateral on the account.
- Prepaid cards: Money can be reloaded onto the cards, giving developmentally disabled adults the ability to make purchases without spending more than the amount available on the card.
- PayPal cash cards: Add money to a PayPal account with cash. Sold in stores such as CVS and 7-Eleven, PayPal cash cards let disabled adults buy things online using a PayPal account without connecting the account to a bank account or a credit card.
3. Put credit safeguards in place.
You can reduce the number of credit offers sent to your developmentally disabled family member by opting out of receiving prescreened offers of credit at OptOutPreScreen.com or by calling 888-5-OPT-OUT.
You also can suggest a credit freeze be placed on your loved one’s credit report, which would make it more difficult for credit to be obtained. In order to apply for credit, the freeze would have to be temporarily lifted, which could be enough to prevent impulsive credit card applications.
If you’re concerned about what your loved one is doing with their finances, ask if they’d be open to you going over their credit report with them at least annually, says Leslie H. Tayne, founder of Tayne Law Group, a New York debt relief law firm.
If a loved one applies for a credit card, it’s best that it have a low credit limit so they can’t run up too much debt. Also explain how credit works and that they should only use the card in emergencies or when they have money to pay the entire bill, says Joseph Wehr, a financial educator for Philadelphia-based credit counseling organization Clarifi.
Those who are capable of making sound financial decisions, but recognize that they need help, could sign an authorization or power of attorney granting a trusted family member the right to act on their behalf in financial matters.
In extreme cases, such as when a family member believes the developmentally disabled person can’t handle their affairs and power of attorney is not an option, the family can petition the court for guardianship. If granted, the family member would become the legal guardian of the incapacitated person.
4. Tackle the card and other debt.
If a developmentally disabled loved one is steeped in credit card and other debt that he or she can’t pay back, don’t pay it off for them, says Christensen. If you do, you could hurt your own financial standing. Instead, help your loved one to come up with a payment plan.
You could contact creditors to see if they would be willing to adjust the terms of the debt or negotiate a settlement. This only works, though, if your loved one has money to settle or an income that allows him or her to make debt payments.
Bankruptcy may be the best option, says Steve Rhode, author of “Eliminate Your Debt Like a Pro.” “Bankruptcy is not about morality. Bankruptcy is a legal tool to allow people to get a fresh start in bad or difficult situations.”
Bankruptcy, though, may be unnecessary if the developmentally disabled person could be deemed “judgment-proof,” meaning that a creditor who sues can’t collect anything if there are no assets.
In some cases, if a person is severely mentally impaired, the court may even rule they are not responsible for the debt.
“Some debts and some contracts can become invalid if the person is disabled because you can't enter into a valid contract if the other person is not mentally capable of entering it,” Tayne adds.
5. Be a trusted source of financial advice.
Regardless of the level of disability, there is one thing you can do: Create a trusting relationship in which your loved one feels comfortable asking for help tackling financial challenges.
Show them how to manage money and credit wisely, says Shaffert. “Part of learning how to make decisions is building a circle of people who support you to make decisions.”
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